2. Forward Looking Statements
In the interest of providing potential investors with information regarding Shona Energy Company, Inc. (“Shona"), including management's assessment of the future plans and operations of Shona, certain
statements contained in this corporate presentation constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities legislation.
Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook",
"potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are deemed to be forward-looking statements as they involve the implied
assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future. Forward looking statements
or information in this presentation include, but are not limited to, statements or information with respect to: the expected closing date and use of proceeds from the financing; potential reserves and future
production with respect to current assets business strategy and objectives; development plans; exploration and drilling plans; reserve quantities and the discounted present value of future net cash flows from
such reserves; future production levels; wells drilled (gross and net); capital expenditures; cash flow; debt levels; operating and other costs; royalty rates and taxes.
With respect to forward-looking statements contained in this corporate presentation, Shona has made assumptions regarding, among other things: future capital expenditure levels; future oil and natural gas
prices; future oil and natural gas production levels; future exchange rates and interest rates; ability to obtain equipment in a timely manner to carry out development activities; ability to market oil and natural
gas successfully to current and new customers; the impact of increasing competition; the ability to obtain financing on acceptable terms; and ability to add production and reserves through development and
exploitation activities. Although Shona believes that the expectations reflected in the forward looking statements contained in this corporate presentation, and the assumptions on which such forward-looking
statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in
this corporate presentation, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking
statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will
not occur, which may cause Shona's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by
such forward-looking statements. These risks and uncertainties include, among other things, the ability of management to execute its business plan; general economic and business conditions; the risk of
instability affecting the jurisdictions in which Shona operates; the risks of the oil and natural gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas and
market demand; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risks and uncertainties involving geology of oil and natural gas deposits;
the uncertainty of reserves estimates and reserves life; the ability of Shona to add production and reserves through acquisition, development and exploration activities; Shona's ability to enter into or renew
leases; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production (including decline
rates), costs and expenses; fluctuations in oil and natural gas prices, foreign currency exchange rates and interest rates; risks inherent in Shona's marketing operations, including credit risk; uncertainty in
amounts and timing of royalty payments; health, safety and environmental risks; risks associated with existing and potential future law suits and regulatory actions against Shona; uncertainties as to the
availability and cost of financing; and financial risks affecting the value of Shona’s investments. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties.
Any financial outlook or future oriented financial information in this corporate presentation, as defined by applicable securities legislation, has been approved by management of Shona. Such financial outlook
or future oriented financial information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on
such information may not be appropriate for other purposes.
The forward-looking statements contained in this corporate presentation speak only as of the date of this corporate presentation. Except as expressly required by applicable securities laws, Shona does not
undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this
corporate presentation are expressly qualified by this cautionary statement.
The information contained in this corporate presentation does not purport to be all-inclusive or to contain all information that a prospective investor may require. Prospective investors are encouraged to
conduct their own analysis and reviews of Shona, and of the information contained in this corporate presentation. Without limitation, prospective investors should consider the advice of their financial, legal,
accounting, tax and other advisors and such other factors they consider appropriate in investigating and analyzing Shona.
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3. Forward Looking Statements
For the purposes of the following, “Misrepresentation” means an untrue statement of a material fact, or an omission to state a material fact that is required to be stated, or that is necessary to make a
statement not misleading in light of the circumstances in which it was made. If this presentation contains a Misrepresentation, a purchaser in Ontario who purchases securities of Shona has, without regard
to whether the purchaser relied on the Misrepresentation, a statutory right of action for rescission or, alternatively, for damages against Shona, provided that no action shall be commenced to enforce a right
of action more than (a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or (b) in the case of any action, other than an action for
rescission, the earlier of (i) 180 days after the purchaser first had knowledge of the facts giving rise to the cause of action, or (ii) three years after the date of the transaction that gave rise to the cause of
action.
Shona will not be liable if it proves that the purchaser purchased the securities with knowledge of the Misrepresentation. In an action for damages, Shona will not be liable for all or any portion of those
damages that it proves do not represent the depreciation in value of the securities as a result of the Misrepresentation. In no case will the amount recoverable exceed the price at which the securities were
sold to the purchaser. Investors should refer to the applicable provisions of the securities legislation of their respective provinces or territories for the particulars of these rights or consult with a legal advisor.
Forecast capital expenditures are based on Shona’s current budgets and development plans which are subject to change based on commodity prices, market conditions, drilling success, potential timing
delays and access to cash, cash flow, available credit and third party participation. Shona’s capital budget has been prepared based upon anticipated costs for equipment and services which are subject to
fluctuation based upon market conditions, availability and potential changes or delays in capital expenditures.
Additionally, forecast capital expenditures do not include capital required to pursue future acquisitions. Anticipated production growth has been estimated based on (i) the proposed drilling program with a
success rate based upon historical drilling success and an evaluation of the particular wells to be drilled and has been risked, and (ii) current production and anticipated decline rates. Although the forward-
looking information contained herein is based upon assumptions which Management believes to be reasonable, Shona cannot assure investors that actual results will be consistent with this forward-looking
information.
“Best Estimate” is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best
estimate. If probabilistic methods are used, there should be at least a 50 Percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
“High Estimate” is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If
probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.
“Low Estimate” is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic
methods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.
“Mean Estimate” is the statistical mean resource value for each exploration prospect. The statistical mean is dependent on the estimated probabilistic distribution of recoverable resources and is not the
same as the “best estimate” or P50 resource volume. These values can be arithmetically summed to obtain a total mean estimate for a group of prospects.
“Management Estimates” means the evaluation conducted by qualified reserves evaluators of the Shona technical team, effective 01 January 2012.
“Prospective Resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with
recoverable estimates assuming their discovery and development and may be subclassified based on project maturity. Unless otherwise indicated herein, the Prospective Resources set out in this
presentation are unrisked, meaning that they are not risked for chance of development or chance of discovery.
Estimates of unrisked Prospective Resources are pursuant to Management Estimates. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will
be commercially viable to produce any portion of the resources. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such
development.
Barrels of Oil Equivalent
Barrels of oil equivalent (boe) is calculated using the conversion factor of 6 Mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil. Boes may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 Mcf:1 bbl (barrel) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the
wellhead.
Analogous Information
Certain noted drilling and completion data provided in this document may constitute "analogous information", such as mapping information obtained in geographical proximity to prospective exploratory lands
to be held by Shona. Such information has been obtained from government sources, regulatory agencies or other industry participants. Management of Shona believes the information is relevant as it helps
to define the reservoir characteristics in which Shona may hold an interest. Shona is unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor or in
accordance with the COGE Handbook and therefore, the reader is cautioned that the data relied upon by Shona may be in error and/or may not be analogous to such lands to be held by Shona.
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4. Investment Highlights
Well-balanced asset portfolio
Established production and cash flow
Diversified oil & gas exploration opportunities in several different basins
Significant exposure to the largest emerging oil plays in Colombia
1.5 million gross acres in Caguan Basin heavy oil belt – which contains the 1.8 billion barrel oil in place Capella discovery
223 thousand gross acres in the Middle Magdalena Basin prospective for unconventional shale oil (potential of 5.4 billion barrels oil in place) – with an initial carry by
ExxonMobil and Shell for approximately $100 million
Larger combined entity will benefit from increased scale
Superior access to lower-cost capital
Provides shareholders with enhanced trading liquidity
Increased ability to participate in regional consolidation activities
Accelerated continued participation in existing Shona assets
Esperanza Block
Recent LOI with Altenesol to supply natural gas for the Nataly I LNG Project
4 high-potential gas prospects expected to be drilled in the second half of 2013
Serrania Block
Two significantly-sized oil prospects, including one of the largest undrilled four-way closures in northern South America
Estimated at a total of 250 million barrels of recoverable oil
Block 102
3D seismic program to be initiated in 2013 focusing on 30 to 100 MMBO leads on trend with 170 MMBO Capahuari Sur Frield
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5. Transaction Overview
Strategic combination of Canacol Energy Ltd. (“Canacol”) and Shona Energy Company, Inc. (“Shona”) announced on
October 15, 2012
Equates to a transaction value of C$0.56* per Shona common share, based on the 15-day volume weighted average share
price of Canacol at the time of announcement (C$0.4449)
Security Exchanged for
C$0.0896 cash consideration per share
Common Shares and
1.0573 Canacol Common Shares per Shona Common Share
Preferred Shares $100 cash consideration per Preferred Share, plus payment of accrued dividends
Warrants Exercisable into 1.2587 Canacol Common Shares under economically equivalent terms
Respective boards have unanimously approved the transaction and the Directors and Officers of Shona and Canacol have
agreed to vote their shares in favour of the transaction
Required shareholder approvals
66 2/3% of Shona Common and Preferred Shares voted at a special meeting of Shona shareholders
50% + 1 of Canacol Common Shares voted at a special meeting of Canacol shareholders
Transaction expected to close on December 19, 2012
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6. Balanced Asset Portfolio
Excellent mix of producing assets and exploration upside
Existing and near term production (four producers in four basins) and
free cash flow supports longer term exploration and appraisal projects
The combined entity will have one of the largest and most
diverse oil & gas portfolios in Colombia
Mix of conventional and unconventional opportunities
29 blocks covering 3.3 million acres in Colombia
Lower Magdalena Basin – significant natural gas reserves and
production
Llanos Basin – existing light oil production with exploration upside
Caguan-Putumayo Basin – tremendous heavy oil upside
Middle Magdalena Basin – emerging shale oil opportunity
Other Latin American interests
Growing oil production base in Ecuador
Light oil exploration in Peru and Brazil
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7. Lower Magdalena Basin
The company’s 100% W.I. Esperanza Block in the
Lower Magdalena Basin covers 60,002 acres
Proven exploration concept with 3D seismic and AVO
anomalies
January 1, 2012 Reserves(1)
Proved 70 BCF
Probable 34 BCF
Possible 85 BCF
Total 189 BCF
Potential 300 BCF (unrisked) on identified prospects
that have AVO anomalies
Current Cerro Matoso and E2 contracts provide for
long-term natural gas sales of 14 mmcfpd
Negotiating gas sales Definitive Agreement with
Altenesol LNG Colombia SAS to supply nearby
Nataly I LNG project
6 (1) Gross reserves as per Collarini Associates NI 51-101 compliant reserves report effective January 1, 2012
8. Nataly I LNG Project
On October 10, 2012, Shona and Altenesol LLC signed a Gas Sales Letter of Intent to convert Shona’s natural gas into
Liquefied Natural Gas for sale to Altenesol’s off-takers
Shona to supply 17,000 MCFD of natural gas at a price per mcf of $4.50 - $5.25 via a meter at the Jobo Station
Doubles current gas sales and brings Shona to up to approx. $40MM in annual Cash Flow
Commencing around January 2015
72,000 GPD 56,000 GPD 60,000 GPD
Residential/Industrial Service Stations Fleet Trucks
Plant
Location
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9. Llanos Basin
• Canacol holds approximately 205,000 (net) acres in
Llanos Basin targeting light oil over 6 blocks
• Rancho Hermoso & Enterrios
Net revenue production of 10,814 bopd (at quarter-end June 30,
2012)
Canacol holds a Risk Service Contract with Ecopetrol that applies to
all production from the Mirador formation, and a Production Sharing
Agreement for production from all other formations
• LLA 23
Operated 80% Working Interest on 92,000 (net) acres
Management estimates net risked recoverable resources of 11.0
mmbbls and a net risked pre-tax PV10 of $242 million
Canacol anticipates drilling its first exploration well to test the
Labrador prospect immediately to the north of the Rancho Hermoso
field in Q4 2012
Total depth of approximately 11,200 ft and will take approximately 20
days to drill
• Additional Canacol interest in ANH operated blocks Drilled 13 of
13 successful
LLA 10 - Non-operated 39% Working Interest in 74,000 (net) acres;
wells
ANH operates
Caño Los Totumos - non-operated 51% Working Interest in 10,500
(net) acres
Morichito - non-operated 15% Working Interest in ~9,000 (net) acres
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10. Caguan-Putumayo Basin
The combined entity will have an interest in 9 blocks covering
over 1.5 million gross acres, targeting more than 50 prospects
and trends, in the Caguan Basin’s heavy oil trend
Block W.I. Operator Gross Acres
Ombu Block(1) 10% Sinochem 73,855
Sangretoro 100% Canacol 385,344
Cedrela 100% Canacol 319,804
Tamarin 100% Canacol 67,922
Achapo 100% Canacol 52,799
Portofino 40% Pacific Rubiales 258,680
Serrania 37.5% Hupecol 110,769
Los Picachos 37.5% Hupecol 52,771
Macaya 37.5% Hupecol 195,254
Over 1,000km of 2D seismic data accumulated identifying 47
prospects
Including one of the largest undrilled four-way closures in northern South
America at the Serrania Block
6 stratigraphic well program underway for calendar 2012
Ecopetrol paid
Existing world class heavy oil discovery at Capella on the Capella $209/acre for PUT 17
discovery in 2012
Ombu Block
PRE paid $155/acre
Management estimates 1.8 billion barrels of OOIP (gross)
for Portofino in 2011
Booked 3P reserves of 7.7 million barrels net to the company
Canacol paid
5 year plan of vertical and horizontal infill drilling to increase field’s productive $33/acre (average) for
capacity and book reserves its approx. 1MM net
acres
9 (1) Contains the Capella field which management estimates 1.8 billion barrels OOIP
11. Middle Magdalena Basin
In the Middle Magdalena Basin, the Company has an
interest in 3 blocks covering 223 thousand acres
The position is prospective for unconventional shale oil Purchase price for
development Carrao Energy was
recovered in less than
The La Luna formation is one of the world’s most productive source
rocks seven months via
farm-outs
Analogue to the Eagle Ford shale in Texas
Management’s P50 estimate for net undiscovered petroleum
initially in place is 5.4 billion barrels
Sizable carried interest on the drilling of 6 wells beginning
in Q3 2012
VMM2 – ExxonMobil will carry the total cost for two vertical wells and
a horizontal well with multi-stage frac, capped at $50.0 million
VMM3 – Shell-Colombia acquired 100% participating interest and
assumed ~$50 million in work commitments; Canacol has the option
to exercise a 20% participating interest for no additional cost effective
in 2014
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12. Ecuador
Canacol holds a 25% W.I. in the JV company Pardaliservices
Operator: Tecpetrol International(1) 40%, others: Schlumberger 20% and Sertecpet 15%
In February 2012, signed a 15 year incremental production contract with PetroEcuade for Atacapi
the Libertador and Atacapi mature fields in Northern Ecuador Libertador
Libertador and Atacapi fields have been producing for 30 years and are currently
producing approximately 16,000 bopd – Pardaliservices partnership would be entitled to
incremental production above this level
Pardaliservices will receive a fixed price tariff of $39.56 for each incremental barrel
produced
PetroEcuador pays all operating expenses
Pardaliservices plans to spend a total of $334 million ($93.3 million, net to
Canacol)
Drill 31 new development wells and work over 28 existing wells over the 15-year period of Incremental 42 mmbls (gross)
the contract 18,000
Facilities expansion 16,000
Waterflood pilot for secondary recovery
14,000 Incremental
12,000
10,000
High-Impact Potential 8,000
6,000
Estimated 45 MMBO incremental to Pardaliservices with an undiscounted revenue value
4,000 Base Curve
of $1.8 billion ($450MM net to Canacol)
2,000
Actual production was 1,400 bopd over forecast in August 2012 -
The first four workovers resulted in actual production that was 80% higher than forecast
11 (1) Proven operator in Ecuador since 1999
13. Profile of Combined Entity
Current Production of 13,150 boe/d Production vs Exploration Blocks
Enterprise Value of $465 million Shona
(upon signing of the Definitive Agreement) Prod. - 1
Shona Shona
2,333 boe/d Expl . - 4
Ca na col
18% Approximately US$736 million of Prod. - 2
BT 2P PV10 reserve value
Ca nacol
10,814 boe/d
82% 317 MMboe of prospective Ca na col
Expl . - 21
resources
Shona shareholders will own
approximately 28%
LQA Op. Cash Flow of $125MM/year 2P Net Reserves(1) of 32MMboe
Board of Directors to be
comprised of 6 Canacol
Shona representatives and 2 Shona
$21.4
17% representatives
Shona Ca na col
15.9 mmboe 16.0 mmboe
Net debt of $56.9MM, including 50% 50%
Ca na col $25MM of subordinate
$103.5 convertible debentures
83%
(1) Shona has Possible reserves of 78 bcf, or 13 MMboe
12 (1) Net Company interest, effective as at Jan. 1, 2012 for Shona and as at Jun. 30, 2012 for Canacol
14. Reasons to Own
Pro Forma Canacol will have a very large and exciting asset portfolio with several near-term catalysts
Dominant position in Colombia’s heavy oil belt in the Caguan-Putumayo Basin
Drilling results from stratigraphic tests on the Portofino and Cedrela contracts expected early 2013
Planned drilling of the Serrania Block in 2013 with up to 250 MMBO gross potential
Continued development of the existing 1.8 billion barrel OOIP Capella discovery
Substantial exposure to the tremendous oil shale potential in the Middle Magdalena Basin
Fully-carried for up to $50MM each by Exxon (VMM2) and Shell (VMM3)
Drilling results from the first 2 exploration wells in the VMM2 block expected in early 2013
Growing cash flow from continued monetization of the natural gas assets in the Lower Magdalena Basin
Pending definitive agreement on ground-breaking LNG project that doubles the Block’s cash flow in 2015
12 targeted prospects containing the potential for an additional 300 BCF of reserves with a 4-5 well drilling program scheduled for the second half of 2013
Additional light oil production potential and free cash flow generation out of the Llanos Basin
Spudding the first exploration well on the LLA-23 block to test the Labrador prospect in early November 2012
Ongoing acquisition of an additional 31 km2 of 3D seismic on the northern part of the LLA‐23 block
Near-term growth in Ecuador assets
Drilling 4 new development wells and working over 8 existing producing wells before the end of 2012
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